Hospital rates vary significantly, Medicare data show

Johns Hopkins Hospital charged $13,667 on average to treat one admission of a Medicare patient with diabetes in 2011, while a couple of miles away Mercy Medical Center billed an average of $8,425.

The University of Maryland Medical Center charged $9,045 on average to treat a kidney and urinary tract infection, while a short distance away Bon Secours Hospital's charges averaged $11,922.

Data released by the federal government Wednesday show that what hospitals charge Medicare to treat patients varies widely. Medicare, which sets its own reimbursement rates, actually pays significantly less, but federal officials hope the data will help patients become better informed and that they revive debate about the price of hospital care.

The data for 3,300 hospitals provided by the federal Center for Medicare and Medicaid Services marks the first time information about hospital rates has been released publicly.

"We are really trying to help elevate the conversation and continue the conversation to ask the question why there is so much variation," said Jonathan Blum, acting principal deputy administrator and director of the Center for Medicare, in a conference call with reporters.

The price variation among the more than 40 Maryland hospitals listed was the lowest among the states because of a unique Medicare waiver Maryland has with the federal government that allows the state to set uniform hospital rates.

There are wide price differences among regions around the country, but they also show up when comparing hospitals in the same area, raising questions about how medical institutions decide what they charge.

"These rates can vary dramatically in ways that can't really be explained," said U.S. Health and Human Services Secretary Kathleen Sebelius in a conference call with reporters. "Even in cities there can be massive differences in what consumers pay."

Pricing mostly affects the uninsured and those with limited coverage, who also are the people who can least afford medical care. In most states, private insurers negotiate rates with hospitals that are — like Medicare's — typically much lower than what hospitals charge. Many hospitals charge the uninsured drastically more than those with insurance.

"If you're uninsured or with a small insurer that doesn't have lot of market power, then you are going to get hanged and probably pay more," said Steve Ports, acting executive director of the Health Services Cost Review Commission, a panel that sets hospital rates in Maryland.

The rate-setting panel decides charges for each hospital in Maryland and prevents many of the unnecessary markups seen in other states, state officials said.

Medicare's Blum said it is worth exploring whether the Maryland system prevents hospitals from "raising their rates artificially."

"I think it is a great question and presents the types of policy questions we are hoping to have with this data release," Blum said.

Under the Maryland system, hospitals charge all insurers the same rate for procedures. Prices vary from hospital to hospital because some have higher operating costs for a number of reasons. Teaching hospitals such as Hopkins and the University of Maryland Medical Center tend to charge more because they have education costs baked into their rates. These hospitals also treat more complicated cases and sicker patients. The state accounts for such variations when setting rates.

Hopkins officials said they aren't worried that the release of the data will drive patients away.

"We get the sickest patients not only from all over the state, but from all over the world — and that is what is filling Hopkins' beds," said Stuart Erdman, senior director of finance for the Johns Hopkins Health System. "When you're very sick, price won't drive patients away."

A Hopkins professor who has studied hospital rates for two decades said he wasn't surprised by the federal data. Dr. Gerard Anderson, director of the Johns Hopkins Center for Hospital Finance and Management, said he hopes the data prompt a closer look at medical costs.

"The magnitude of the variations gets worse every year," he said. "It is always a surprise at how bad it has gotten."

Anderson said a lack of accountability has led to inflated hospital prices.

"Nobody is watching," he said. "Nobody knows what the prices are. Nobody can compare the prices. Hospitals have been raising them because nobody has told them they can't."

The hospital rate scrutiny comes as Maryland seeks to modernize the Medicare waiver that allows it to set rates. The current waiver is contingent on Maryland hospitals keeping their average cost per admission from rising no more quickly than hospitals in the rest of the country. Because it's volume-based, some say it encourages hospitals to admit more patients. As health care shifts toward prevention and outpatient treatment, the state argues, the waiver should too.

Many in the state said the Medicare data could give more weight to the importance of keeping the waiver, though in an updated form.

"An all-payer system has many benefits, and this is just one of them," Ports said of how the waiver has limited variation in Maryland's hospital rates.

State officials and the hospitals have been at odds abouthow to modernize the waiver. A key contention is how big a financial hit hospitals will have to take.

"As we look at a new waiver we should be very careful," said Carmela Coyle, president and CEO of the Maryland Hospital Association. "We have a rate-setting system that is a jewel."

One health care consultant said there will be more transparency as the health system evolves from one based on hospital stays to one that takes overall care into account.

"There is really a sea change occurring, a game-changer of how we are going to bill," said Dr. Phil Polakoff, chief medical executive with FTI Consulting, an Annapolis-based business advisory firm.